COMMENT: Landlording is a business

Tuesday 6 November 2018

Governments from both sides of the political equation have failed to recognise residential landlording as a business - but it is, argues Auckland Property Investors Association vice president Peter Lewis.

The genesis of the New Zealand Labour Party lies in the gritty, grimy and muscular blue-collar labourers who worked long gruelling hours in the mines, the factories and on the wharves. Armed with quite genuine grievances and fired with visions of a just and fair society they achieved political power by the 1930s and then propelled a number of their own colleagues into Parliament.

Despite their name, the Labour Party activists today have become almost entirely white-collar. Academics, school teachers, sociologists, public servants, do-gooders and leftish lawyers. 

Their elected Members of Parliament have, almost without exception, never worked for a day outside politics. They have moved adroitly from a liberal tertiary education through to some tax-payer funded bureaucracy or NGO and then on to their current parliamentary role. Most would give themselves a hernia if they tried to pick up a spade.

As such, they entirely misconstrue what makes the country run and simply cannot understand that business in this country is overwhelmingly a Ma-and-Pa enterprise.

Efforts by the current coalition Government to connect with and reassure the business sector of the economy strongly reflect this limited view. The recently appointed members of the Business Advisory Council all come from the big tower-block end of town. Professional politicians and bureaucrats share a similar background and view of the world with professional managers and directors.

Where does this leave the plumber who employs two or three staff and does his bookwork at the kitchen table at night after himself working hands-on for nine or ten hours during the day, the shopkeeper who attends the counter six days a week 52 weeks of the year without six weeks of annual holidays and, yes, the landlord with a full-time day job as well as a couple of residential rental properties and who spends his weekends repairing fences and mowing lawns?

On the political outer for a start. Jacinda Ardern has been reported as saying that she had spoken with New Zealand business and they are comfortable with her changes to the economy.

Yet, as far as I can tell, she has not spoken to any residential landlords, individual Property Investor Associations, or the Property Federation. In her eyes, and by extension the other members of her coalition Government, it would seem that we are not ‘business’. We seem to exist in some twilight ‘other world’ where the normal rules of commerce do not apply.

But being a residential landlord is a business like any other trade, from a cat-house to a computer company. Over 80% of New Zealand landlords possess just one or two properties and unfortunately many such landlords do not even consider themselves as being in business.

They have inherited or otherwise acquired an additional property or two without much forethought or planning, and see themselves just as someone who happens to be getting a bit of an extra income on the side from the rent and building up an asset for their retirement.

Most of the landlording horror stories I hear involve people not treating their properties like a business. They accidentally or on a whim become a landlord. If landlords themselves do not think they are running a business, why should anyone else think differently?

Both the current Government and previous administrations have often proposed and frequently enacted ill-informed policies that denounce all landlords as oppressors of the poor. High-living rip-off merchants and public enemies who must be hit with additional taxes to satisfy the demands from and hence attract the support of the idle, the incompetent and the casually fecund.

So landlording is not even lumped into the ‘Small and Medium Enterprise’ basket. Instead it is at best regarded by as a hobby, at worst as a tax-evading rip-off, and by Governments from both sides of the house as a convenient target for abuse, censure, blame, and punishment.

What is a business? A business is a commercial activity. Assuming that you are not working at being a landlord for purely altruistic reasons, you are engaging in a commercial activity – exchanging shelter for financial reward. You have suppliers, you have customers, you have contractors, you have responsibilities and you must obey the law of the land.

You have to be knowledgeable about the property, the people, the paperwork and the processes involved. And on top of that, succeeding in the business of rental properties requires a certain set of skills and desires. Making a living as a rental property owner isn’t always as easy as others would lead you to believe. However you look at it, a landlord is in business just as a motel operator is in business and a hotel owner is in business.

Many of the punitive proposals and taxation arguments around property are based on two fundamental misconceptions. Firstly, the ongoing and possibly deliberate confusion around the difference between property investors and speculators, and secondly the false but firmly held belief that somehow there are special and unique tax advantages for those who rent out property.

To claim that property has an unfair tax advantage over other investments is incorrect. No such tax advantage exists. Those who advocate for a capital gains tax on property - and only on property - are actually asking for a targeted penalty on property that does not exist anywhere else in the New Zealand tax system.

Many long-term capital gains are currently and always have been tax-free. Stephen Tindall sold The Warehouse business without a tax bill, and when Sam Morgan sold Trade Me he could quite legally keep all the proceeds without any consequential tax liability.

So largely the onus is on us as landlords to act in a business-like manner, promote being a landlord as an acceptable career choice, stand up against those who would vilify and abuse us, and portray ourselves and the businesses we run as fair, equal, and worthy participants in the ordinary commerce of the country.

Comments from our readers

On 7 November 2018 at 9:38 am Mysty said:
This letter should be an open letter to the PM.
On 7 November 2018 at 10:03 am OliverBroomfield said:
Great article Peter Lewis. Being a landlord or property investor is a legitimate business. Like other sole traders or partnerships, the Gov't(s) need to recognise this. Landlords & property investors play an important part in providing much-needed housing in NZ. 46% of Aucklanders live in rental accommodation. There needs to be a better partnership between the private sector and Gov't to ensure sufficient capacity for renters remain. Decreased interest in the private sector in being a landlord will ultimately see rent rising due to greater competition. The Gov't cannot take on all the risk of providing this accommodation, and landlords must be able to access all the risks & rewards of traditional sole trader or partnership businesses.
On 7 November 2018 at 11:51 am Janice111 said:
It's a pity there are some terrible landlords around. Gives us good ones a bad name and lets everyone down. Same with bad tenatnts. We've found you really need to keep your eye on the ball and be almost Johnny on the spot to keep abreast of all the scenarios that occur on a weekly basis. We own 3 units and been in this game nearly 7 years. It does take up a lot of your time and money, but overall we enjoy it and are in it for the long haul. To us, it wouldn't be worth it to sell up now as it will help furnish our retirement and give us an interest and activity. I think those that aren't in the game and begrudge those that are, might be ignorant and can't be bothered to shift themselves and get jealous of those that do.
On 7 November 2018 at 12:10 pm bArt said:
Tax is paid on rental income is that also unfair? Just because capital gains are made in other areas of life somehow means that capital gains made on property should not be taxed? There are plenty of people who have worked in menial jobs in the Labour Party. Lefty Lawyers? An emotional story that has no substance, just a warped perspective. BTW, I own a nice home mortgage free and could choose to be a landlord tomorrow. I agree on one thing though, renting property is a business and should be respected, treated and taxed as such.
On 7 November 2018 at 6:26 pm Property Leader said:
Peter you make it sound as if the majority of property investors / landlords management their own properties. Based on Phil Twyfords claim that $73 million is paid in letting fees this means that 300,000 rentals out of 450,000 are being professionally managed. That is 66%. This a huge business with a turn over of $11.44 billion per year.
On 8 November 2018 at 10:01 am Kritzo said:
Hi Property Leader - I don't quite agree with your conclusion from the data you've presented. I know of many landlords who only use the Property Managers to source new tenants from their databases, but have no ongoing management agreement in place. All letting fees will indeed be paid and lodged by the property managers - whether they end up managing the tenancy or not. It does not mean all of the 300,000 rentals out of 450,000 are professionally managed on an ongoing basis. From what I can see at Property Investor Association meetings, and talking to other landlords - most landlords fall in the mum-dad category and does the property management, intending to save the 10% management fee as additional income during their retirement. I think the article hits on a good point - landlords would need to start behaving like business owners first before the Government(and the people) will view it as a business and not some sideline hobby. I'm pretty sure the NZPIF will have data on the percentage of landlords that uses property managers to manage their property - as opposed to just using them to source and screen new tenants. It would be interesting to get a grip on these numbers. Great discussion though, thanks!
On 9 November 2018 at 10:54 am jeff.saunders said:
Peter Lewis is absolutely on the money - again. Landlords are so often seen as grasping irresponible people rorting tenants. No party seems to understand landlording and how much hard work it is. Most landlords look after their tenants very well as I do, but that is certainly not a view held by MPs in general.The capital gains tax is another attempt to punish landlords which as Peter points out, doesn't happen when you sell any other business.

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